1. Chapter 2 Section 2

2.  How much can an economy produce with the resources available? What are the economy’s production capabilities?  Simplifying Assumptions answers the questions above: Limit the output to two broad categories: consumer goods and capital goods Production is a given – a year Resources are fixed in both quantity and quality Knowledge about how to combine resources to produce output does not change during the year

3.  Shows the possible combinations of the two types of goods that can be produced when available resources are employed fully and efficiently.  Efficiency – means producing the maximum possible output from available resources.

4.  Open to Page 42 in textbook to review graph and sketch below.

5.  Inefficient: does not produce the maximum possible output from available resources. (Point I)  Unattainable: combinations that are unattainable given the resources and technology available. (Point U)

6.  Any movement along the PPF involves giving up some of one good to get more of the other.  The shape of the PPF reflects the law of increasing opportunity cost  Law of Increasing Opportunity Cost: states that each additional increment of one good requires the economy to give up successively larger increments of the other good.

7.  An outward shift in the PPF reflects economic growth, which is an expansion in the economy’s production possibilities or ability to produce. OR The economy’s ability to make stuff grows.

8.  A decrease in the availability or quality of resources shifts the PPF inward.